01-3667. Federal Government Participation in the Automated Clearing House

AGENCY:

Financial Management Service, Fiscal Service, Treasury.

ACTION:

Interim rule with request for comment.

SUMMARY:

This rule amends our regulation governing the use of the Automated Clearing House (ACH) system by Federal agencies. The regulation adopts, with some exceptions, the ACH Rules developed by NACHA—The Electronic Payments Association (NACHA) as the rules governing the use of the ACH system by Federal agencies. We're issuing this interim rule to address changes that NACHA has made to the ACH Rules during the past year.

DATES:

This interim rule is effective March 19, 2001. The incorporation by reference of the publication listed in the rule is approved by the Director of the Federal Register as of March 19, 2001.

ADDRESSES:

You can download this interim rule at the following website: http://www.fms.treas.gov/​ach/​. You may also inspect and copy this rule at: Treasury Department Library, Freedom of Information Act (FOIA) Collection, Room 1428, Main Treasury Building, 1500 Pennsylvania Avenue, NW, Washington, DC 20220. Before visiting, you must call [phone] for an appointment.

You can view Treasury's procedural guidelines for ACH payments in the Green Book at the following website: http://www.fms.treas.gov/​greenbook. You may also register at this website for e-mail notification of updates to the Green Book.

You may send comments electronically to the following address: [e-mail]. You may also mail comments to Cynthia L. Johnson, Director, Cash Management Policy and Planning Division, Financial Management Service, 401 14th Street, SW, Room 420, Washington, DC 20227.

FOR FURTHER INFORMATION CONTACT:

Walt Henderson, Senior Financial Program Specialist, at [phone] or [e-mail]; Natalie H. Diana, Senior Attorney, at [phone] or [e-mail]; Adam Martin, Financial Program Specialist, at [phone] or [e-mail]; Michele Heine, Financial Program Specialist, at [phone] or [e-mail]; or Cynthia L. Johnson, Director, Cash Management Policy and Planning Division, at [phone] or [e-mail].

SUPPLEMENTARY INFORMATION:

I. Background

Part 210 incorporates, with certain exceptions, the ACH Rules. NACHA periodically updates the ACH Rules. Each year NACHA publishes a new rule book that reflects the changes to the ACH Rules that have been approved since the publication of the previous rule book. Part 210 currently provides that any amendment to the ACH Rules, as published in NACHA's 2000 rule book, that takes effect after September 15, 2000, will not apply to Federal government ACH entries unless we publish notice of acceptance of the amendment in the Federal Register. 31 CFR § 210.3(b)(2). NACHA recently published its 2001 rule book. We're publishing this interim rule in order to indicate which amendments to the ACH Rules we're accepting and which amendments we're rejecting.^[1]

II. Summary of Rule Changes

A. Changes to ACH Rules

The ACH Rules published in NACHA's 2001 rule book reflect changes to the ACH Rules published in NACHA's 2000 rule book related to five topics ^[2]

1. Telephone Initiated ACH Debit

NACHA has adopted a rule enabling an Originator to initiate a single entry ACH debit to a consumer's account for transactions initiated over the telephone. The rule requires the Originator to receive oral authorization from the Receiver, and to retain that authorization for a period of two years from the termination or revocation of that authorization. The Originator must either tape record the authorization or provide the Receiver with written notice confirming the oral authorization prior to the settlement date of the entry. The rule permits the initiation of ACH debits by telephone in three sets of circumstances: When a consumer makes a telephone call to a company with which the consumer has an existing relationship, when a company makes a telephone call to a consumer with whom the company has an existing relationship, or when a consumer makes a telephone call to a company with which the consumer has no prior relationship. The rule change will become effective September 14, 2001.

2. Corrected Returns Time Frame

NACHA has adopted a rule that amends the ACH Rules to shorten the time frame for the transmission of corrected returns to two banking days from the settlement date of the dishonored return. This change will make the time frame consistent with that of the contested dishonored return process. This rule change will reduce the risk to the Originator and originating depository financial institution (ODFI) because corrected returns will be received more quickly than is currently required. The rule change will become effective March 16, 2001.

3. Internet-Initiated Entries

NACHA has adopted a rule that is intended to establish a foundation for promoting secure Internet-initiated ACH payments. The rule establishes a new Standard Entry Class (SEC) Code, WEB, that will specifically identify consumer ACH debit transactions initiated over the Internet. Among other things, the rule requires that Originators utilize commercially reasonable fraudulent transaction detection systems to screen entries; verify that routing numbers are valid; and establish secure Internet sessions prior to and during the key entry by consumers of banking information. The rule will become effective March 16, 2001.

4. Accounts Receivable Check Truncation

In 1999 NACHA adopted a short-term rule expanding the definition of the Prearranged Payment and Deposit Entry (PPD) format in the ACH Rules to allow Originators to utilize the PPD format to truncate checks received through the U.S. mail for payment of goods or services and convert them to ACH debit entries. The implementation period for the rule ended on December 15, 2000. However, in order to allow for the continuation of pilot programs testing lockbox check truncation, NACHA has issued a revised short-term rule with an implementation period from December 15, 2000 through March 14, 2002. Unlike the original short-term rule, the revised short-term rule permits truncation of items exceeding $2,500.

5. Cross-Border Payments

NACHA has amended the ACH Rules governing the transmission and receipt of cross-border entries to (1) include necessary legal protections for ACH network participants in light of modifications to the Cross-Border Payment Operating Rules that were adopted by the Cross-Border Council and (2) allow for the transmission and receipt of cross-border debit transactions. The amendment became effective September 15, 2000.

B. ACH Rule Changes That We Are Accepting

We are accepting the ACH Rules that address telephone-initiated ACH entries, corrected returns time frames, and cross-border payments. These rule changes are effective as of the effective date of this interim rule or NACHA's effective date for the rule change, whichever is later. In order to incorporate these rules in Part 210, the only change necessary to the current regulation is to replace references to the 2000 rule book with references to the 2001 rule book.

C. ACH Rule Changes That We Are Not Accepting

We are not accepting, at this time, the ACH Rules that address accounts receivable check truncation or Internet-initiated entries. We are currently evaluating Treasury initiatives in both of these areas and will publish a notice of proposed rulemaking in the near future in order to provide the public with an opportunity to comment before we adopt rules related to these transactions.

D. Section-by-Section Analysis

Section 210.2(d)

We are amending the definition of “applicable ACH Rules” at section 210.2(d) to reference the rules published in NACHA's 2001 rule book rather than the rules published in NACHA's 2000 rule book. We also are adding new subsection 210.2(d)(6) and (d)(7) to exclude the rules relating to accounts receivable check truncation and Internet-initiated entries from the definition of “applicable ACH Rules.”

Section 210.3(b)

We are amending subsection 210.3(b), “Incorporation by reference—applicable ACH Rules,” by replacing the references to the ACH Rules as published in the 2000 rule book with references to the ACH Rules as published in the 2001 rule book.

III. Procedural Requirements

Request for Comment

We invite comment on all aspects of the interim rule.

Request for Comment on Plain Language

On June 1, 1998, the President issued a memorandum directing each agency in the Executive branch to write its rules in plain language. This directive is effective for all new proposed and final rulemaking documents issued on or after January 1, 1999. We invite comment on how to make this interim rule clearer. For example, you may wish to discuss: (1) Whether we have organized the material to suit your needs; (2) whether the requirements of this interim rule are clear; or (3) whether there is something else we could do to make this rule easier to understand.

Notice and Comment; Effective Date

We find that good cause exists for issuing this interim rule without prior notice and comment. Under the Administrative Procedure Act, an agency is permitted to issue a rule without prior notice and comment when the agency for good cause finds that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest. 5 U.S.C. 553(b)(B). We believe that it is important to address the publication of new ACH Rules as quickly as possible in order to mitigate the uncertainty and inconvenience to financial institutions and agencies that would result from a time lag in responding to NACHA's rule changes. When we proposed to address changes to the ACH Rules by reviewing and responding to rule changes on an annual basis, we received many comments expressing concern over the potential consequences of such a time lag.

Those consequences include uncertainty as to the rules governing government ACH transactions, as well as the inability of financial institutions to segregate the processing of those transactions. For these reasons, we find that we have good cause for issuing this interim rule without prior notice and comment.

Nevertheless, we are inviting comment and will consider the comments received.

Executive Order 12866, Regulatory Planning and Review

This interim rule does not meet the criteria for a “significant regulatory action” as defined in Executive Order 12866.

Regulatory Flexibility Act

Because notice and public comment are not required, the Regulatory Flexibility Act (5 U.S.C. 601) does not apply.

Paperwork Reduction Act

This interim rule contains no new collections of information. Therefore, the Paperwork Reduction Act does not apply.

List of Subjects in 31 CFR Part 210

• Automated Clearing House
• Electronic funds transfer
• Financial institutions
• Fraud, and Incorporation by reference

Authority and Issuance

For the reasons set out in the preamble, 31 CFR part 210 is amended as follows:

PART 210—FEDERAL GOVERNMENT PARTICIPATION IN THE AUTOMATED CLEARING HOUSE

1. The authority citation for Part 210 continues to read as follows:

Authority: 5 U.S.C. 5525; 12 U.S.C. 391; 31 U.S.C. 321, 3301, 3302, 3321, 3332, 3335, and 3720.

2. Revise § 210.2(d) to read as follows:

§ 210.2

Definitions.

* * * * *

(d) Applicable ACH Rules means the ACH Rules with an effective date on or before September 14, 2001, as published in Parts II, III, and IV of the “2001 ACH Rules: A Complete Guide to Rules & Regulations Governing the ACH Network,” (see § 210.3(b)), except:

(1) ACH Rule 1.1 (limiting the applicability of the ACH Rules to members of an ACH association);

(2) ACH Rule 1.2.2 (governing claims for compensation);

(3) ACH Rule 1.2.4; 2.2.1.10; Appendix Eight and Appendix Eleven (governing the enforcement of the ACH Rules, including self-audit requirements);

(4) ACH Rules 2.2.1.8; 2.6; and 4.7 (governing the reclamation of benefit payments);

(5) ACH Rule 8.3 and Appendix Two (requiring that a credit entry be originated no more than two banking days before the settlement date of the entry—see definition of “Effective Entry Date” in Appendix Two);

(6) 2.1.4; 2.9; 3.6; 7.6.3; and 7.7.3 (governing PPD accounts receivable truncated check debit entries); and

(7) ACH Rule 2.10 and 3.8 (governing Internet-initiated entries) and Appendix Two (definition of WEB entry).

* * * * *

3. Revise § 210.3(b) to read as follows:

§ 210.3

Governing law.

* * * * *

(b) Incorporation by reference—applicable ACH Rules. (1) This part incorporates by reference the applicable ACH Rules, including rule changes with an effective date on or before September 14, 2001, as published in Parts II, III, and IV of the “2001 ACH Rules: A Complete Guide to Rules & Regulations Governing the ACH Network.” The Director of the Federal Register approves this incorporation by reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies of the “2001 ACH Rules” are available from NACHA—The Electronic Payments Association, 13665 Dulles Technology Drive, Suite 300, Herndon, Virginia 20171. Copies also are available for public inspection at the Office of the Federal Register, 800 North Capitol Street, NW., Suite 700, Washington, DC; and the Financial Management Service, 401 14th Street, SW., Room 420, Washington, DC 20227.

(2) Any amendment to the applicable ACH Rules that takes effect after September 14, 2001, shall not apply to Government entries unless the Service expressly accepts such amendment by publishing notice of acceptance of the amendment to this part in the Federal Register. An amendment to the ACH Rules that is accepted by the Service shall apply to Government entries on the effective date of the rulemaking specified by the Service in the Federal Register notice expressly accepting such amendment.

* * * * *

Dated: February 8, 2001.

Richard L. Gregg,

Commissioner.

Footnotes

1.  The 2000 ACH Rule changes were published in an interim rule with request for comment. 65 FR 18866 (April 7, 2000).

2.  NACHA also adopted in the 2001 rule book a rule that modifies the process by which amendments to the ACH Rules are approved. Under the new rule, approval of an amendment requires two thirds of the voting power cast on the amendment by members entitled to vote. The rule change became effective as of January 1, 2001. Since neither the Financial Management Service nor other Federal agencies vote on the amendment of the ACH Rules, this rule change does not affect the Federal government's participation in the ACH system and we do not believe it is necessary or appropriate to address this rule modification in Part 210.